Tax and Bonus

Flixton86

Hopefully a straight forward question...

Say I were to receive a pay increase in Jan which would take me into the 40% pay bracket, and I were to then receive a bonus in April - would the bonus be taxed at 40%?

Or would the bonus still be taxed at 20%, because in the April to April period I would not have earned enough in total to warrant the 40% tax?

I have probably explained that horribly - basically is the 40% tax done on a month by month basis, or is it applied in total based on a years taxable earnings?

Thanks.

Lokolo

When do you get paid in April? April 6th is a new tax year so depending on the answer to my first question will determine the answer.

Flixton86

I get paid at the end of every month - the last working day.

Darksparkle

Flixton86 wrote: »

I get paid at the end of every month - the last working day.

So the bonus will be paid in the new tax year?

Flixton86

Sorry, no, it will be paid 31st March.

Darksparkle

What's your tax code?

If no X or M1 after it then your tax code should be cumulative and will take into account your pay and tax details for the year.

National Insurance looks at each pay period.

Flixton86

Thanks. Code is 1100L.

So looks like it will be based on the year - which is good.

ThinkingOutLoud_2

Not sure the tax code is relevant to what you should ultimately pay, as this is based on the past / predicted earnings status. It will / should / may be adjusted; but might see you pay and have to claim back.

The actual / exact date you get paid and whether it falls either side of the April tax year does matter too, perhaps.

So the good news is I think that ultimately you will ultimately be liable to pay tax based on your total income for the year including base salary and bonus. So nothing at higher rate if I have understood what you say.

So it is simpler to explain by example = if say the combination of lower past income since April 2016 and our new salary until March plus your bonus meant you earned less than the £11,000 in total. Then you pay no tax because in total you earned less than the 20% tax threshold.

Now imagine you earned £42k (more like what you describe) - then you are going to pay 20% tax on everything between £11k and 42K.

The ONLY caveat is that your employer and their system and the taxman combine to see that is what is going to happen and your tax code allows them to still only take 20% tax as appropriate.

I suggest you talk to your payroll and or HMRC and get your tax code sorted set correctly to reflect your new world. That way the amount of tax deducted via PAYE will be accurate and your worn't owe or be owed any tax.

There are many tax calculators online you can use to see what you should pay for the year, if you put in your predicted 2015/2016 tax year earnings.

If you do underpay tax due to the process taking a while to sort or overpay for the same reason - make sure you know so you keep money back or equally complete a tax claims for the year asap after April to get any overpayment back.

Also try to ensure your National Insurance contribution is clear and right as this comes out of your salary too!

CLAPTON

ThinkingOutLoud wrote: »

.


The ONLY caveat is that your employer and their system and the taxman combine to see that is what is going to happen and your tax code allows them to still only take 20% tax as appropriate.

I suggest you talk to your payroll and or HMRC and get your tax code sorted set correctly to reflect your new world. That way the amount of tax deducted via PAYE will be accurate and your worn't owe or be owed any tax.

The ONLY things the payroll takes into account are the earning to date and the taxcode.

There is no point in discussing tax with an employer as they can't change a taxcode UNLESS told to do so my HMRC.

If you do underpay tax due to the process taking a while to sort or overpay for the same reason - make sure you know so you keep money back or equally complete a tax claims for the year asap after April to get any overpayment back.

if the tax code is correct for the March 2017 pay, then the tax will be correct

ThinkingOutLoud_2

Clapton

You are right only HMRC can change the tax code - but I'd hope a helpful payroll department might guide Flixton86 how to ask them.

Of course, if the tax code is right in March - the tax will be right. IF it is right. I think Flixton86's post was asking how to resolve their tax uncertainty.

If the code does not get sorted before March, then it is possible tax may be over- or underpaid - a point worth knowing so you can keep money back or pursue a refund.

Darksparkle

OP is on the standard tax code for the year. There does not appear to be any reason to change it based on the information given.

You don't change tax code just because you go into higher rate or receive a bonus.